A few preliminary thoughts about the City of London

According to Philip Augur’s “The Death of Gentlemanly Capitalism”; the 1987 Big Bang in the City of London, is estimated to have created 750 millionaires after the senior partners of the old jobbing and broking firms sold out to banks and other larger firms.

By 2000, the historic merchant banks, later (would be) investment banks, were very largely no longer UK owned. Those that hadn’t collapsed had been taken over by US investment banks, and a few by European banks, Dresdner Bank, Deutsche Bank, French and Swiss banks.

The Times (Jan 19, 2000, quoted by Augur) tells us reassuringly “The demise of the UK investment banks is  a natural part of the process of international specialization that results from globalisation”´. Augur calls into question this process and the phenomenon referred to as Wimbledonisation. In other words, the financial activities of the City of London take place in the UK, are staffed by many Brits but the controlling boards of directors are elsewhere in continental Europe and the US.

This perhaps goes some way towards providing an explanation for my feelings of puzzlement about the lacklustre response to Brexit on the part of City of London. Surely, it was against the interests of important sections of the UK finance sector who greatly benefited from the UK’s role as intermediary between the US (and the rest of the world) and the EC?

Roch Dunin-Wasowicz (What explains the City of London’s ineffectiveness at shaping the Brexit regulations) finds a partial explanation in the lack of professional lobbying in the UK compared with the US, influence having been traditionally exercised by cosy meetings between representatives of the Bank of England, the Treasury and city banking institutions. The Big Bang radically changed this picture, traditional relationships (and some institutions) were broken up, products became more complicated and  influence more difficult to focus and exert.

The focus on the effects of the Big Bang seems key to me for understanding where and what the City is now.  It opened up the Stock Exchange to outside and foreign organisations. The US investment banks welcomed the new opportunities and moved in on a large scale. But having gained this position, would they be so bothered if the City of London’s position post-Brexit declined in favour of Wall St?

Traditionally, US financial organisations  were attracted to the City of London by its light touch regulation, often self-regulation compared with the tougher regulatory environment in the US . I’m not sure how important that still is but the question of regulation seems important for understanding opposition from sections of the UK finance sector to the EU’s drive to harmonise its financial markets, so that the rules applicable in London might be closer to those of Paris or Zurich or other European financial centres (and  the City would then perhaps lose in international attractiveness for those in search of light-touch regulation).

I’m curious about what we mean when use the term UK finance capital given the weight of foreign ownership of financial institutions in the City of London. Lazily I’ve thought that the smart money in the UK is no longer being invested in large-scale manufacturing industry which is now very often foreign owned but is invested in the finance sector. But where does this leave us when major institutions in many of the City’s sectors of activity are foreign-owned? Does UK finance capital boil down to wealthy individuals with holdings in hedge funds?

This leads on to the relationship of government to the finance sector in the UK.

I used to think that there was far more effort devoted to the interests of the finance sector than to manufacturing capital. To me the post-war history of the government’s relationship to industry seems hard to comprehend, weakly focused, even chaotic, leading up to the final slaughter during the Thatcher period with the company names familiar when I was young now long gone.

However, the more I read about the development of the relationship between the finance sector and the UK government the more it seems to me to resemble what happened to UK manufacturing. The then Conservative government’s focus on the Big Bang seems narrow – a dogmatic belief in the power of the market to enhance efficiency with the government only setting the external framework but not interfering closely  in the process. And they were right in their way, the most efficient survived and the weakest went to the wall. Did it matter that the weakest just happened to be UK-owned financial institutions?

Augur criticises the government for not preparing the institutions better for the Big Bang, for not introducing outside ownership more gradually. The way it was set up, it would inexorably eventually lead to the demise of the UK owned institutions.

As someone who lives at some considerable distance from the levers of power and the accompanying perks and privileges, it wouldn’t bother me too much if the leading banks in the city were US rather than UK owned but one might think that the above behaviour was rather odd for a UK government purportedly working on behalf of UK interests. It’s more like what happened in manufacturing industry than it might appear at first sight.

Thatcher’s politics are not mine but I’ve always thought her overrated by those who praise her (attempting to look at the world through their eyes). They liked her rolling back the post-war nationalisations and reducing the power of the trade unions and cutting back the welfare state but this demolition was achieved at an enormous social expense and cost to the victims without an attempt at a coherent strategy for a capitalist future in the UK. Similarly in the finance sector, individuals became wealthy but there was again no coherent strategy for UK finance capital beyond the narrow belief in the healing power of the market.

I’m only at the beginning of my reading about the City and the UK financial sector; I need to read critiques of Augur’s work and more up-to-date analyses. However, some lines of investigation attract my interest, for instance what does UK finance capital consist of? Does the decline of the power of the UK as a country reflect a reduction in the wealth of the leading layers, a destruction of capital, or has the capital simply moved elsewhere  (and if so where). And the relationship of the finance sector and the UK government. Is the unstable nature of the Conservative Party conjunctural or does it reflect growing difficulty on the part of the establishment to articulate a coherent strategy in a situation where the owners of capital become further and further removed from directly useful economic activity and the daily concerns and needs of the majority of the population.  

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